Gol To Cut Back Fleet After Losses

May 4, 2012

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Gol committed to a smaller fleet for the next three years on Friday, as part of a plan by Brazil's second-largest airline to control costs after posting its third loss in a year.

The airline said it was cutting routes by 2 percent this year after 8.2 percent growth in 2011. The combined fleet of Gol and its recently acquired Webjet unit will also shrink from 150 planes last year to 138 at the end of 2012.

By cutting planes and dropping around 100 daily flights this year, the carrier is working to revert slipping seat occupancy and offset the higher fuel costs and airport fees that have hammered its bottom line. The airline's fleet is expected to end 2013 at 135 planes, before growing to 140 in 2014.

The São Paulo-based carrier lost a net BRR41 million reais (USD$22 million) in the first quarter, down from a profit of BRR54 million reais a year earlier. But profit margins recovered as costs per kilometre declined from the prior quarter, reflecting a programme of layoffs and expense controls.

"The return to a positive operating margin, even slightly positive, represents a change in trajectory. We are confident we can maintain the rationalisation and reduction of costs," chief executive Constantino de Oliveira said.

Gol shares rose 3.2 percent in Sao Paulo trade, leading gains on the Bovespa stock index after tumbling 15 percent in the prior month.

The airline's new fleet plan cemented its renewed discipline as air traffic in Latin America's largest economy slows from years of double-digit growth. Aggressive expansion plans last year met with a glut of available seats in the market, pushing down prices just as fuel prices and payrolls drove costs higher, and Gol reversed course to restore margins.

IMPROVING MARGINS

Executives said the airline would continue trimming flights this month and they expected to see the full impact of the cuts in the third quarter.

Ticket prices have already begun climbing, although load factor declined as a result, leaving Gol flights emptier than the rest of the market. Recovering passenger volumes in the second half should help to lift occupancy rates, executives said.

Revenue per kilometre rose 10.2 percent in the first quarter, while unit costs per kilometre rose at a slower 6.6 percent pace from a year earlier. On a sequential basis, CASK excluding fuel costs - the most volatile item in Gol's cost line - fell 3.9 percent.

Earnings before interest, taxes, depreciation, amortisation and rental leases, EBITDAR, rose 9 percent from a year earlier to BRR268 million reais.

EBITDAR fell to 12.4 percent of revenue, compared with 18.7 percent a year earlier. The so-called EBITDAR margin rose from 11 percent in the fourth quarter of 2011, reflecting improvement in Gol's cost and expense structure.

In response to media reports that Gol was negotiating that Delta Air Lines may increase its stake in the carrier after buying a 3 percent stake in December, Oliveira said his company was not in any such negotiations.

(Reuters)